The Dodd-Frank Act has not brought an end to the “too big to fail” concept, Congressional Republicans have claimed.
Just days before the controversial law’s fourth anniversary, Republican lawmakers on the House Financial Services Committee said the Dodd-Frank Act was established based on a “profound misunderstanding” of the causes of the 2008 financial crisis and the government bailout policy, in a 97-page report published on Monday.
“In no way, shape, or form, does the Dodd-Frank Act end ‘too big to fail’,” Jeb Hensarling, chairman of the House Financial Services Committee, said in a statement. “Not even Timothy Geithner believed his talking points on that. Instead, Dodd-Frank actually enshrines ‘too big to fail’ into law.
The report said the law gave regulators greater control over the financial system—“and a virtually unlimited pot of taxpayer money”—to bail out Wall Street firms.
“The Dodd-Frank has institutionalized ‘too big to fail’ at the peril of local communities and their access to capital,” Patrick McHenry, chairman of the Oversight and Investigations Subcommittee, said.
Specifically, the Republicans pointed out flaws with the Financial Stability Oversight Council (FSOC), describing it as an “unwieldy conglomeration of regulatory officials” tasked with identifying and mitigating risks in the financial system. Lawmakers said the council lacks transparency in its voting structure, record-keeping practices, and governance, lending itself as a “source of systemic risk”.
The FSOC’s recent designations of non-bank financial entities as “too big to fail” also bore serious implications in the markets, the report said.
The report also said the Office of Financial Research—responsible for collecting financial data to recognize systemic risk—had been unsatisfactory. It cited its analysis of the asset management industry and its relation to systemic risk as “superficial and uninformed.”
Mary Jo White, chair of the Securities and Exchange Commission (SEC), also stated that the Dodd-Frank is far from perfect.
“In my first year as Chair of the SEC, the commission has made significant progress in putting to work the tools provided by the Dodd-Frank Act,” White said in a statement last week. “We must continue our work with intensity, and we must be deliberate as we consider and prioritize our remaining mandates and deploy our broadened regulatory authority. Progress will ultimately be measured based on whether we have implemented rules that create a strong and effective regulatory framework and stand the test of time under intense scrutiny in rapidly changing financial markets.”
The House Committee on Financial Services will hold a hearing entitled “Assessing the Impact of the Dodd-Frank Act Four Years Later” on Wednesday to further discuss the law’s progress. The panel will include Barney Frank, the retired sponsor of the law, the committee said.
Read the full report here.
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